I would like to comment on DTC’s use of ATOP for executing consent solicitations.

While use of ATOP would automate the process, there is a ‘pay-to-play’ aspect that was not inherent to the process in the past.

When thinking of municipal bonds, which often deal in multiple maturities (CUSIPs), DTC would charge $2k per CUSIP along with other fees associated with setting up ATOP in a short time period ($2k to $5k per CUSIP depending on the notice period). These are costs that hit municipal obligors and trustees disproportionality harder than their corporate counter-parts, who often have fewer CUSIPs.

A few examples:

Obligors/Trustees acting on behalf of smaller issues that may have defaulted, with no working capital, looking to receive bondholder consent with respect the sale of the underlying asset or amendment of the Indenture would incur this sizable expense simply to count votes.

A Trustee of an $2 million bond issue may have five CUSIPs. A cost of $10k to DTC, which they may have to incur several times before bondholder direction is secured.

A Trustee/Obligor looking to execute a crucial consent of from a majority bondholder must now pay DTC a fee, where in the past that holder could have a single letter of consent executed across a table (in a short time period).

As some of the large municipal issuers (or residential mortgage backed security/student loan trusts) have hundreds of CUSIPs, any consent from bondholders would costs tens of thousands (if not hundreds of thousands of dollars) simply as an operational fee. This doesn’t account for costs to print and mail. This is an unfair cost that hurts the bondholders, who the consent is intended to help.

As many distressed issues are resolved through negotiation up to deadlines that trigger defaults (among bondholders, issuers, and trustees), needing to process consents via DTC’s ATOP (which requires a certain amount of time to set-up) would add a layer of bureaucratic restriction on the process. A consent could not be completed in a short time period, and not without paying an exorbitant fee.

DTC does not charge issuers/trustees to utilize ATOP for tender/exchange offers. The costs fall on their Participants, who pay it as a preferred method to executing these events on their behalf. I do not understand why the cost of a consent should fall on the issuer/trustee, when the consent’s execution is in the best interests of the bondholder, and the inability to pay or meet DTC’s operational schedule only hurts the bondholders.

This is not to say ATOP could not be a valuable resource, but a mandated one will create inequality in the system and an unfair operational hurdle. One should have the right to opt out of using ATOP when the cost is too much or the operational restrictions prevent the execution of the bondholder’s wishes.